What impact will landlord cutbacks have on the industry?

The most recent report from specialist mortgage lender, Kent Reliance, has indicated that over one-third of landlords are looking to cut their yearly spending.

However, this could come as a concern to tradesman and professionals supporting the industry.

Contributions

According to the research, landlords currently contribute £15.9bn per year to the UK economy through pre-tax spending. This in turn supports thousands of jobs.

This figure has more than doubled from a predicted £7.1bn in 2007, due to the substantial growth of the private rental sector and spiralling costs of property.

The cost of keeping a property, maintenance and servicing was the largest outlay, amounting to 5.5bn. In addition, landlords spend £2bn in service charges and rent, £963 on insurance, £904 on utilities and £1.1bn on other costs of letting.

Letting agents’ fees total £4.7bn every year, with £644m being spent on legal and accountancy requirement and £218 on administration costs. In total, landlords provide £5.5bn of revenue for these sectors.

Running Costs

Looking at running costs for each property, the typical landlord now spends £3,632 per year, before tax or mortgage interest. This amounts to one-third of the average rental income.

This figure has risen by one quarter since the beginning of 2007, a predicted rise of £714-without increased taxes being factored in.

Of this, £1,025 is spent on repairs, servicing and maintenance. £870 was spent of letting agent fees per dwelling. The average landlord spends £374 per property per annum on ground rents and service fees. Average costs of insurance amount to £181, legal and accountancy fees total £121, while administrative and licensing fees total £41.

What’s more, it is thought that void periods lose landlords £652 every year.

What impact will landlord cutbacks have on the industry?

Cutbacks

With costs rising and tax bills soaring, landlords are beginning to take action. 36% of landlords questioned by Kent Reliance said that they already have, or will reduce their spending. One in five said they plan to increase rents.

17% said that they would look to cut down on property upkeep and maintenance, while 10% said they would look to keep the purse strings tighter for letting fees and mortgage costs.

As a result, these landlords feel that they will reduce spending on letting agents’ fees by 28% and mortgage costs by 15%. This could well impact significantly on industries and jobs that depend on landlords for much-needed revenue. It is feared that across the sector, these planned cuts will reduce spending by over £500m every year.

John Eastgate, Sales and Marketing Director of OneSavingsBank, noted: ‘Landlords may seem like an easy target for political point scoring, but they play a vital role in the economy. Not only do they house a huge proportion of the country’s workforce, bridging the housing demand and supply gap, their spending supports thousands of jobs – whether builders, cleaners, lawyers and accountants or letting agents.’[1]

‘Trying to tackle the housing crisis by targeting landlords with punitive taxes is very simple and politically highly palatable, but has unintended consequences. Either it means less work for all those who support the property industry, or it means tenants will have to foot the bill for the government’s tax raid, or both,’ he continued.[1]

Concluding, Mr Eastgate said: ‘One side effect of the recent changes, and rising running costs, will be the professionalisation of the sector as amateur and accidental landlords leave the market. There is nothing wrong with having fewer, bigger landlords, but that alone will not help more young people get homes.’[1]